America need only fear the lack of fear on Wall Street

There was a funny political cartoon recently, spoofing the fact that nothing President Clinton does seems to affect his poll ratings - as long as the stock market keeps rising. The cartoon showed a newscaster announcing that a severed head had been found in Clinton's sleeping quarters in the White House, but with the Dow having reached a new record high the U.S. public was indifferent.

Lately the whole world has started to remind me of that cartoon. I half expect Dan Rather to begin the evening news one day like this: "And here are tonight's headlines: India and Pakistan leveled each other's capitals today with nuclear bombs. The Taj Mahal went up in a mushroom cloud. In Moscow today, Russia declared bankruptcy and closed for business. In Asia, the Thai, Korean and Indonesian economies sank into depression, while in Japan, the country's political leadership was in such a state of confusion the main headline in one Japanese newspaper screamed: `The People of Japan Are Home Alone.' Meanwhile, OPEC was in disarray today as the price of crude oil fell again, making gasoline much cheaper than Diet Coke. But on Wall Street, the Dow hit a new record high on expectations of higher corporate earnings . . . ."How long can the United States keep thriving while everyone else is in turmoil? Is America now on another planet or what? I posed that question to Goldman, Sachs' renowned market analyst Abby Joseph Cohen. Her answer: It can last longer than you might think.

Cohen argues that the U.S. economy is a lot like a supertanker - not the prettiest of ships, not the fastest, but once it got on the right course, once the U.S. government and leading corporations went through the necessary deregulation and streamlining to get ready for this era of rapid technological change and global markets, "this U.S. supertanker is not easily set off course, and it's the sort of ship you want to be on when the seas get rough."

Sure, the United States must care about what happens abroad, says Cohen. After all, America is the world's largest importer and exporter. But the U.S. economy is so big that foreign trade is still only 13 percent of overall U.S. economic activity, which remains "quite robust," notes Cohen. Moreover, U.S. foreign trade is divided pretty evenly among Western Europe, Asia and North and South America. So while Asia's on its back, Canada, Latin America and many Western European countries are getting stronger.

Also, notes Cohen, when you look into the U.S. economy you see that America, for the most part, is not competing with China to sell stuffed toys or VCRs, which have become commodities. We aren't even competing with Malaysia to sell basic computer chips. An increasing portion of U.S. exports are advanced technology items or high-level services - all of which have a high value-added component and are not easily substituted by some lower-cost producer. There is no Korean alternative for Microsoft Windows 98. There is no Thai version of Andersen Consulting.

Moreover, what is hurting so many other countries - the fall in the price of oil and other commodities and the slowdown in Asia - helps keep inflation and interest rates low in America. This combination of falling gas prices and interest rates has amounted to a huge tax cut for Americans, and with the U.S. economy now restructured it can take full advantage of these lower input costs. Japan, Germany and France, by contrast, are still hybrid economies. They have some truly world-class, restructured, globalized companies - like Toyota and Sony - but also a lot of laggards. That's why America's markets today have replaced gold as the place many people want to put their money in times of uncertainty.

So what could wipe the smile off America's face? Everyone is waiting for some "event." But there really was no event that triggered 1929 or October 1987. What America is most vulnerable to is actually a subtle, collective change in mood - so the next time the market dives, instead of lots of people buying on the dip, and therefore putting a bottom under any market fall, they sell on the dip. Yes, there are some solid fundamentals underlying America's strength today, and those competitors and investors who underestimated them have lost a lot of money. But overestimating can be just as dangerous. "Strong" and "invulnerable" are two different things. That's why the only thing we have to fear is the lack of fear itself.